WORLDWIDE: HEADLINES
Sanctions-Savaged Russia Teeters On Brink Of Historic Default
The economic cost of Russia’s assault on Ukraine was fully exposed on Wednesday as Vladimir Putin’s sanctions-ravaged government teetered on the brink of its first international debt default since the Bolshevik revolution.
Moscow was due to pay $117 million in interest on two dollar-denominated sovereign bonds it had sold back in 2013. But the limits it now faces making payments, and talk from the Kremlin that it might pay in roubles – triggering a default anyway – meant even veteran investors were left guessing at what might happen.
One described it as the most closely watched government debt payment since Greece’s default at the height of the euro zone crisis. Others said an emergency ‘grace period’ that allows Russia another 30 days to make the payment could drag the saga out.
“The thing about defaults is that they are never clear cut and this is no exception,” said Pictet emerging market portfolio manager Guido Chamorro.
“There is a grace period, so we are not really going to know whether this is a default or not until April 15,” he said referring to the situation if no coupon payment is made. “Anything could happen in the grace period.”
A Russian government debt default was unthinkable until what Putin called a “special military operation” in Ukraine began in late February.
It had nearly $650 billion of currency reserves, coveted investment-grade credit ratings with S&P Global, Moody’s and Fitch, and was raking in hundreds of millions of dollars a day selling its oil and gas at soaring prices.
Then the tanks rolled and the United States, Europe and their Western allies fired back with unprecedented sanctions, which froze two-thirds of Russia’s reserves that it turned out were held overseas.
“I think the market now expects Russia not to make the (bond) payments,” the head of emerging market debt at Aegon Asset Management Jeff Grills, adding the conflict was one of the few emerging market events capable of really unsettling global markets.
That is because Russia’s role as one of the world’s top commodity producers has sent prices and global inflation skywards.
At the same time, it has left Russia a virtual pariah state, crippled by sanctions and watching hundreds of the world’s largest firms now quit the country after deciding their presence there is no longer feasible.
Full coverage: REUTERS
Japan Posts Bigger-than-expected Trade Gap As Energy Imports Jump
Japan reported a wider-than-expected trade deficit in February as an energy-driven surge in import costs caused by massive supply constraints added to vulnerabilities for the world’s third-largest economy.
Exports rose slightly less than expected despite a rebound in China-bound shipments, in a worrying sign for an economy facing growing uncertainty from supply challenges and Russia’s invasion of Ukraine.
“There’s a big likelihood the trade deficit will expand further,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Although car exports picked up in February, they aren’t in a situation of growing steadily due to supply disruptions and a chip shortage, while imports are swelling as oil and raw material prices soar.”
Imports surged 34.0% in the year to February, Ministry of Finance data showed on Wednesday, above a median market forecast for a 28.0% gain in a Reuters poll.
That outstripped a 19.1% year-on-year rise in exports in February, resulting in a 668.3 billion yen ($5.65 billion) trade deficit, which was bigger than the 112.6 billion yen shortfall expected in a Reuters poll.
February’s deficit was, however, narrower than January’s 2.19 trillion yen gap, which was the biggest in a single month in eight years.
The finance ministry said exports declined a seasonally adjusted 0.5% from the previous month, underscoring headwinds in outbound shipments. Imports rose a seasonally adjusted 2.7% month-on-month.
“Exports fell again in February, though they should rebound over the coming months provided the recent Omicron outbreak in China doesn’t cause major supply chain disruptions to resurface,” said Tom Learmouth, Japan economist at Capital Economics.
“Adding in the merchandise trade data for February, net trade could knock off as much as 1.0 percentage point from GDP (gross domestic product) growth this quarter as exports tread water but imports rise strongly.”
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asian Shares Up Ahead Of Fed Meeting As China Rebounds
Asian share markets rose on Wednesday on a rebound in battered Chinese stocks and ahead of a closely watched meeting of the U.S. Federal Reserve, while oil prices remained volatile as investors’ weighed the outcome of peace talks on Ukraine.
Ukrainian President Volodymyr Zelenskiy said on Wednesday that peace talks were sounding more realistic but more time was needed, even as Russian air strikes continued and the refugee tally from Moscow’s invasion reached 3 million.
The rebound in Asian shares came a day after spiking coronavirus infections in China and dashed expectations of a rate cut by the country’s central bank sent shares in mainland and Hong Kong markets tumbling.
“People are concerned that policymakers would believe that the economy is doing much better and growth is rebounding and there’s no need for further policy easing measures,” said Ting Lu, chief China economist at Nomura.
“I think a small rate cut is not a big deal anyway, but people are concerned about for example zero-COVID strategy, people are concerned about the property market and … other policies.”
China has seen increasing positive changes in its economic performance backed up by surprisingly good economic data, but the impacts of the latest COVID-19 resurgence need to be watched, China’s statistics bureau spokesman said on Tuesday.
On Wednesday, Chinese health authorities reported a slight drop in new cases compared to a day earlier, although major Chinese cities continue to grapple with spreading cases.
A 2.6% jump in Hong Kong’s Hang Seng index (.HSI) and a 0.5% gain in the blue-chip CSI300 index (.CSI300) led rises across Asia on Wednesday morning, with MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) up 1.21%.
Australian shares (.AXJO) were up 1.08%, and Seoul’s Kospi (.KS11) added 0.55%, while Japan’s Nikkei stock index (.N225) rose 1.29%.
The gains in Asia followed a relief rally overnight on Wall Street driven by hopes of a resolution in Ukraine. The S&P 500 (.SPX) gained 2.14%, the Nasdaq Composite (.IXIC) jumped 2.92% and the Dow Jones Industrial Average (.DJI) rose 1.82%.
Full coverage: REUTERS
Dollar Near 5-year Peak To Yen Before Fed; Aussie Weak Amid China Risks
The dollar traded near a five-year high against the yen on Wednesday as investors awaited a Federal Reserve policy decision, with the Ukraine war and China’s surging COVID-19 cases as the backdrop.
Treasury yields surged ahead of the Federal Open Market Committee decision, buoying the dollar against its Japanese peer, with traders fully priced for a first interest rate hike in three years, and giving 13% odds of a half-percentage point increase.
The dollar was also hovering near its highest level this month to the Aussie after commodity prices pulled back from multi-year peaks as markets stayed optimistic that Russia-Ukraine talks could lead to an end to hostilities.
Australia’s currency also came under pressure as top trade destination China saw new COVID cases more than doubling on Tuesday to a two-year high, raising concerns about the rising economic costs of its zero-tolerance policies to contain the disease.
Meanwhile, the euro continued its recovery from a plunge to a nearly 22-month low earlier this month.
That helped keep the dollar index stuck around 99.0, from as high as 99.415 at the start of last week.
“Whether it’s forlorn or otherwise, there does seem to be some enduring optimism (coming from) the fact that Russia and the Ukraine are still talking,” helping the euro to stabilise, said Ray Attrill, head of FX strategy at National Australia Bank.
For the greenback, “the bigger question will be that there is a lot of historical evidence that the dollar peaks as soon as the Fed commences the tightening cycle, so there’s a lot of interest in whether what the Fed does turns out to be something of a watershed in terms of a peak,” with the dollar index topping out around 100, Attrill said.
The dollar index last stood at 98.880, down slightly from Tuesday. The euro ticked 0.14% higher to $1.09695, from a trough of $1.08060 on March 7.
The Aussie edged 0.08% higher to $0.72015, after dipping to $0.71650 in the previous session for the first time since Feb. 28.
The dollar traded at 118.21 yen after hitting 118.45 overnight, its strongest since January 2017.
Full coverage: REUTERS
Oil Prices Climb As Russia-Ukraine Ceasefire Talks Stoke Volatile Trading
Oil prices rose early on Wednesday, bouncing back after earlier falling more than $1 a barrel, as Russia’s invasion of Ukraine continues to dominate volatile trading with ceasefire talks the latest market trigger.
Brent futures were up 83 cents, or 0.8%, at $100.74 a barrel at 0120 GMT. U.S. West Texas Intermediate (WTI) crude rose 58 cents, or 0.6%, at $97.02 a barrel. Both contracts had earlier declined more than $1, with Brent falling to $98.86 a barrel and WTI easing to $94.90 a barrel.
Ukrainian President Volodymyr Zelenskiy said in a video address released early on Wednesday that the positions of Ukraine and Russia at peace talks were sounding more realistic, but more time was needed.
“Traders are awaiting more clues from ceasefire talks after a two-day selloff in the oil markets, but the crude prices may continue being under pressure as high inflation will eventually drag on economic growth and weakens demands,” said Tina Teng, an analyst at CMC Markets.
Oil had settled below $100 on Tuesday, the first time since late February. Trading sessions have been volatile since Russia’s invasion of Ukraine on Feb. 24, with prices hitting 14-year highs on March 7, but since then Brent has fallen nearly $40 a barrel and WTI about $34.
Prices have also come under pressure in recent days over concerns of slowing China demand, as the world’s most populous country and second-largest oil consumer imposes stringent measures to contain the spread of COVID-19.
Meanwhile, preliminary data from the American Petroleum Institute showed U.S. crude inventories rose by 3.8 million barrels for the week ended March 11, while gasoline inventories fell by 3.8 million barrels and distillate stocks rose by 888,000 barrels, according to sources, who spoke on condition of anonymity.
Official U.S. government inventory data is due on Wednesday.
Full coverage: REUTERS
